Property Valuation
Effective gross income (EGI) in an income analysis is calculated as:
APotential gross income minus operating expenses
BPotential gross income minus vacancy and credit losses✓ Correct
CNet operating income plus debt service
DGross rent multiplied by cap rate
Explanation
EGI = Potential Gross Income (PGI) - Vacancy and Credit Losses. It represents the income the property is expected to actually collect.
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Key Terms to Know
Capitalization Rate (Cap Rate)
A rate used to estimate the value of income-producing property, calculated as Net Operating Income divided by property value.
Gross Rent Multiplier (GRM)A quick valuation metric for income properties calculated by dividing the property price by gross annual rental income.
Net Operating Income (NOI)The annual income generated by an income-producing property after subtracting operating expenses, but before debt service.
Debt-to-Income Ratio (DTI)A lender's measure of a borrower's monthly debt obligations relative to their gross monthly income, used to evaluate loan eligibility.
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